Bumper US Jobs Paves Way For Fed Hike

Tammy Harvey
March 15, 2017

USA household wealth has hit record levels.

Brickworks shares jumped 7.4 per cent to $14.05 after broker Bell Potter called the stock the "cheapest building materials exposure in the market" and upgraded it to "buy".

Any increase in the key federal funds rate would come a bit earlier than had been expected at the start of the year.

The Federal Reserve is widely expected to raise its benchmark interest rate by 0.25 percentage points on Wednesday, the third such rate increase since the end of the financial crisis. Swiss Re estimated that the low level of rates since the 2008 global financial crisis have cost USA savers nearly $1 trillion in lost income from a broad range of fixed-income securities. Both prongs of the Fed's price stability and full employment dual mandate have shown strength over the a year ago: The core personal consumption expenditures index, the Fed's preferred inflation gauge that excludes volatile food and energy prices, registered 1.7% in January, ever closer to the central bank's 2% target.

USA stocks rose modestly on Friday and bonds rallied after data showed U.S. employers added a robust 235,000 jobs in February, wage growth picked up and the jobless rate ticked down to 4.7%. The unemployment rate held roughly steady at 4.7 per cent.

The figures reinforce the message from the Federal Reserve that the United States is homing in on full employment and remove a final barrier to a quarter-point rate increase on Thursday morning, our time.

The month of March has been cruel to Ms Yellen in the past.

Oil prices fell to three-month lows after OPEC reported that crude inventories in developed countries had risen above the five-year average in January despite production cuts by some of the world's largest exporters.

"We don't think that tighter monetary policy will be the undoing of the United States stock market", said Capital Economics' chief market economist John Higgins. It also reduced banks' reserve requirement ratio, among other measures, in a bid to spur economic growth.

The Fed is expected to raise interest rates at the conclusion of the two-day monetary policy meeting Wednesday.

Many observers then thought the Fed may put off rate raises for a while until more is known about President Donald Trump's economic agenda.

"It would be a mistake to pooh-pooh the impact of Fed tightening surprising markets with its pace and magnitude", Strugger wrote in a note last week.

Four stocks fell on the New York Stock Exchange for every one that rose. Inflation had also been on the upswing, which should also lead to higher rates.

Last week, a group of Fed officials including Chair Janet Yellen hammered the point that they were prepared to lift rates at the Fed's upcoming meeting as the economy is near full employment and inflation to closing in on their 2 percent goal. Some analysts expect a quarter-point rise, though most of the betting is now on a half point, pushing the base rate to a range of 1% to 1.25%.

If the economy continues to outperform the central bank's expectations, "I think the Fed would likely signal a fourth rate hike" at a later date, Sweet said in a telephone interview.

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